Innovative Synergy of Insurance and
Takaful
Ely Aswita[1]
Associate of the Islamic Insurance
Society (AIIS)
Abstract
This
study aims to identify and describe the innovative Synergy of Insurance and Takaful. This study uses a
qualitative, descriptive, literature-based method to describe innovative synergy
of Insurance and Takaful. This method is appropriate for reviewing conditions
and phenomena by information and data drawn from an existing
condition. At the same time, the qualitative method is used to analyse the
achievement of the innovative synergy and the supporting factors by conducting
interviews with informants from company where has been implemented the Innovative
synergy of Insurance and Takaful. Research
and surveys were taken in a Family Takaful operator in Malaysia, which
conducted an innovative synergy with the holding Insurance company in Malaysia.
The study results, shows that Takaful can be an engine of growth of
Insurance and become one of the main drivers for the Insurance business. How to
make both grow with their uniqueness. Based on data from the Indonesian
Financial Services Authority or Otoritas Jasa Keuangan, OJK 2022, Takaful Life
Assets in Indonesia in 2022 has a portion of 5.6% compared to the total assets
of Life Insurance in general. Meanwhile, Takaful General Insurance has a market
share of 3.7%. It is powered by 15 Takaful Life and Takaful Reinsurance
companies Full Pledged and 43 Takaful and Takaful Reinsurance in the form of a Takaful
Business Unit. For years, the 5% portion was hard-pressed to move towards a
better number Some innovative synergies are needed to make both Takaful and
Insurance grow with their uniqueness. Leveraging with sharing service model on
the distribution and operations is one of the Innovative synergies of Insurance
and Takaful. Strategic initiatives to widen distribution reach and enhance
operational efficiency and infrastructure capabilities with integrated quality,
regulatory and financial oversight framework will strengthen the synergy. Growth
trajectory will be founded on propelling Takaful to a better portion.
Keyword: Takaful, Synergy,
Insurance, Innovative, leveraging.
This research is a relatively new field that has emerged from initiations
and ideas for how to innovate and maximize the synergy between insurance and
Takaful to create more effective and efficient business operations. Currently, Insurance
and Takaful most likely have different products as well as marketing activities
such as Contests or Rewards. Only a few people know the uniqueness of Takaful, and Takaful
products seem not favourable. Data published by OJK on November 22, 2022 (OJK National Survey of Financial Literacy and Inclusion in
2022) shows the Islamic financial literacy index of the Indonesian people
is 9.14 percent in 2022. Meanwhile, the Islamic financial inclusion rate is
12.12 percent in 2022. Low takaful market penetration, low marketing promotion
and education, less innovative in products and services, limited knowledge of takaful
business are reasons why Takaful did not grow as expected (Nugraheni &
Muhammad, 2019). Innovative synergy of Insurance and Takaful can be a solution
to reduce the gap. There are also some results of the previous researcher mention
that Shared Services Center (SSC) is a strategy and
business model used by companies in increasing the role of support functions to
have competence and high technical mastery in helping work processes that are
routine, repetitive, and high volume (Simon Mingay, Frances Karamouzis, 2018).
SSC encourages companies to be more competitive by reducing costs, increasing
efficiency, and having clear and measurable service management standards.
Competitive advantages of shared services are created by the existence of a
flexible and elastic structure, emphasizing the main activities and
reconfiguring supporting activities. (Eldhini Viona 2019)
This paper
aims to examine some previous work and propose a new method for Innovative
synergy of Insurance and Takaful. The Objectives of the Synergy of Insurance and
Takaful are to accelerate Takaful business growth, to drive cost efficiency, to
have same service quality with Insurance and to make Takaful as the engine of
growth Insurance through its distribution channel and become main driver to
Insurance business. The innovative synergy of Insurance and Takaful will
deliver economic growth, drive cost efficiency and by sharing service or
leveraging model offers greater opportunities.
A
Management Strategic Theory were carried out to find out Innovative Synergy of
Insurance and Takaful. This study uses a qualitative, descriptive,
literature-based method to describe innovative synergy of Insurance and
Takaful. This method is appropriate for reviewing conditions and phenomena by
analysing information and data drawn from existing condition. At the same time,
the qualitative method is used to analyse the achievement of the innovative
synergy and the supporting factors by conducting interviews with informants
from company where has been implemented the Innovative synergy of Insurance and
Takaful.
By
regulation of POJK 11-year 2023, Insurance Company is obligated to separate its
takaful units, and completed not later than December 31, 2026, therefor,
company should have an initiative on how new takaful companies are efficient,
have competitiveness structure, and low-cost business
operations. A
challenging problem that arises in this domain is how to make an Innovative
Strategy for Insurance and Takaful, which may effectively grow both Takaful and
Insurance.
There has
been less previous evidence that provides solutions or further exposure on how
to initiate an innovative strategy of Insurance and Takaful. This paper is
written to explore and describe how the Innovative strategy of Insurance and
Takaful can be a solution to growing business together. Based on Indonesia Financial
Services Authority Regulation (POJK) No. 11 year 2023, the Takaful Unit is
obliged to separate from its parent company. The Spin-off Takaful Unit must be
completed on December 31, 2026, at the latest. Defines a spin-off as a divested
“company” in which division of the company becomes an independent company, and
new shares of the company is distributed to the shareholders of the company”
(Reuters 2021). Based on POJK 11-year 2023, The company is required to separate
the Takaful unit if Takaful Unit Assets has reached at least 50% (fifty
percent) of the total value of the parent company and if the Takaful Unit equity
has reached IDR 100 Bio (One hundred billion rupiah).
Some previous
studies of separation Units from its parent company or
spin-off Islamic banks are Al-Arif et al., 2020; Pambuko, 2019; Sihombing &
Yahya, 2016; Trinugroho et al., 2021. The difference between this research
and previous research is about the research objects. This
research object is focused on how to make an Innovative synergy of
insurance and takaful, which explores some methodologies of activities, synergy,
and cooperation between Insurance and Takaful. This research aims to prove how the
innovative synergy of Insurance and takaful works to grow business.
This paper is written based
on the experience of author’s working visit to one of Family Takaful Operator
in Malaysia, where company has done some Innovative strategy of Insurance and
Takaful, not only in business and operational process but also in sales and marketing.
This paper describes an
Innovative Synergy between one of Family Takaful Operator and Holding of Insurance
Company in Malaysia, how the business model between Insurance and Takaful works
and understands leveraging model Insurance and Takaful. Several works have
shown that some problems can be overcome by using the Leveraging Model
as an innovative synergy of Insurance and Takaful. Below is the Business Model
on how the Innovative Synergy of Insurance and Takaful works.
2-1
Takaful Business Model
Innovative
synergy of Insurance and takaful can be started by creating a Target Operation
Model (TOM) to describe of desire state of the operation model of an
organization. Develop plan for managing change in ownership, identify issues
and challenges, detailed plan to achieve synergistic benefits and comply with
regulatory requirements, execute the plan, and ensure immediate control.
By using Target
Operational Model will defines how an organization will meet its business
objectives, it is outlining how various element like process, technology,
governance, and people should interconnect, interact to deliver value. TOM also
provide transparent and comprehensive blueprint for translating strategic
objectives into operational capabilities, ensuring alignment across the
organization’s ecosystem (Capstera 2023).
Family Takaful Operator (FTO)
is creating a Target Operating Model (TOM) to descript of the desired state of
the operation model of an organization. In this case, they decided that Holding
Insurance Company (HIC) as a product manufacture as well as a distributor and
service provider.
Key success factor:
·
Communication
strategy to stake holder.
·
Governance strategy
to ensure that all activity meet regulatory requirement.
·
IT strategy to
support business processes efficiently and effectively through an outsource
model including Business Continuity Management.
2-2
Outsource Takaful to Insurance
The
concept of outsourcing came from the American terminology “outside resourcing”,
meaning to get resources from the outside. The term was later used in the
economic terminology to indicate the use of external sources to develop the
business, which typically were using their internal resources (Victor-Adrian Troaca- 2012).
Family Takaful Operator (FTO) outsourced to Holding Insurance Company
(HIC) based on core and non-core activity.
•
FTO provides business rule (SOP & SLA) for each
function that are outsourced.
•
All functions that are outsourced are subject to regulatory
approval.
Functions those are outsourced to Insurance will make positive impact to
TFO, such as costs reducing, Increased efficiency, Increasing profits, scalability,
improved quality, and risk mitigation strategies.
Key
responsibilities and methods of exercising governance:
JSC
Meeting:
Facilitate discussions on strategic direction & escalated issue’s Resolutions.
Overall
Monitoring:
Implement RIGHT governance mechanism and Assurance of complete benefit
realization across all outsourced functions.
Outsourcing
Review:
Review applicability of scope & services, review appropriateness of
charging mechanism, ensure compliance with regulatory requirements.
2-3
Leveraging by Sharing Service Model
Shared
Services Center (SSC) is a strategy and business model used by companies in
increasing the role of support functions to have competence and high technical
mastery in helping work processes that are routine, repetitive, and high volume
(Simon Mingay, Frances Karamouzis, 2018)
Some
activities leveraging models adopted by Takaful Family Operator (FTO) and Holding
Insurance Company (HIC):
•
Takaful leverages on the distribution reach and
operational scale of Insurance.
•
Takaful target is embedded into the KPIs of every
division in Insurance.
•
Takaful
offers similar products as Insurance to ease product training and speed up the process
in of operation, Takaful products, may add some features that are specific
to the Muslim market, such as Rider Hibah, Rider Waqf, Etc.
•
Takaful
fulfil a product manufacturer role with Insurance as the distributor &
service provider.
•
Takaful
will leverage Insurance comprehensive distribution channels, operational scale,
and functions’ capabilities.
•
The
following functions may be outsourced to Insurance with a Service Level
Agreement in place Distribution, Operations, Customer Experience - Branch
Services, Contact Centre, Customer Care, Legal, Marketing - Product
Development, Communications, Brand & and digital Strategy, IT,
Finance - operations, Procurement and Human Resource.
Takaful ensures that outsourced services performed by service providers
are within SLA, the cost spent for the services is accurate and equitable, risk,
compliance, and Takaful aspects are in check, service standards are aligned
with their SOPs, effective
tracking mechanisms are to be in place.
2-4
Distribution Governance
Takaful is
obliged to do business performance review by doing Business Performance
Monitoring, evaluate strategic Initiatives and reports, consolidated business database,
and performance analysis. On the other hand, Takaful also evaluates Channel
Management side such as business development activities, establish discussions
on performance & and operational activities, cost management with
distribution channels and sharing Takaful-specific training needs.
2-5
Takaful Outsourcing Fee Recovery Mechanism
Outsourcing Fee divided into 2 (two) categories, namely direct cost, due
to an explicit amount of financial loss (i.e., wrongly paid claims) and
indirect cost, due to substandard service levels (qualitative
or quantitative measures) and it is segregated into 2 types:
1. Qualitative
Measure
Where
service quality of the outsourced service is not met, the fees payable in
respect of that item shall be reduced by such amounts as the JSC may deem
appropriate.
2. Quantitative
Measures
Where the
Service Level falls below 70% of its target, the fees payable in respect of
that item shall be reduced by the corresponding percentage.
1. Conclusion
Leveraging model by sharing services is one of innovative synergy of Insurance and Takaful. The synergy may grow both Insurance and Takaful business. The Synergy has been well founded in propelling Takaful industry. Synergy of Insurance and Takaful provide greater growth opportunities and contribute positively to the prospects of both companies through greater synergy and effective execution of across-the-board strategies to lead the takaful industry development. Synergy of Insurance and Takaful will enable continued delivery of general business and will deliver ambitious change within the Company against the following outcomes.
·
Cost
efficiency.
·
Efficient
business model.
·
Integrated
and seamless customer experience.
·
A
developed workforce.
·
Leveraging
service quality standard
·
A
sustainable entity
·
Increase
branding awareness for both Insurance and Takaful
·
Expand
market segment especially Takaful business growth.
Doing Leveraging
Model will provide same service standards, customers feel same and good service
quality, create added value and Takaful Brand Image.
The
leveraging model describe here has successfully enabled the Takaful Operator to
become one of the fastest growing Takaful Operator. Within 10 years, it has
established itself as one of the top Family Takaful Operator in Malaysia.
On the
other hand, the Holding Insurance Company as a shareholder of the takaful
operator, get some benefit:
1.
By
using the leveraging model to grow the takaful company the holding insurance
company will be able to keep overall costs of insurance and takaful at a
manageable level and grow the profits sustainably.
2.
The
holding insurance company will be able to strategize the insurance and takaful
business and ensure that there is no cannibalization of between the two.
3.
Customers
will be able to enjoy the same level of service for both insurance and takaful
which will enhance the overall brand loyalty of the insurance & takaful
group.
When comparing our results to previous studies, this paper has been explored an Innovative synergy of Insurance and takaful. This may also useful and become as a solution on how Insurance and Takaful grow their business together. Insurance can be act as a product manufacture, distributor, and service provider for Takaful. The advantage of using this innovative synergy is to manage customer centricity, customer-centric focus, sustainable cost reduction, agility, nimbleness and simplicity for growth and decision making, simplification of structure, positioning IT as an enabler rather than a cost and maintenance of operational excellence. Key success factor of doing synergy of Insurance and Takaful is communication strategy between Takaful and Insurance as well as their stake holder, outsourcing framework, governance strategy to ensure that all activity meet regulatory requirement, IT strategy to support business processes efficiently and effectively through an outsource model including Business Continuity Management.
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[1] Ely.aswita@gmail.com
(Corresponding Author)
